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Barriers to Entry and Profitability

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  • Heger, Diana
  • Kraft, Kornelius

Abstract

Barriers to entry are regarded as major impediments to the working of markets. Entry must not necessarily actually take place - the perceived threat of entry may encourage incumbent firms to behave as if they are in a competitive market, even if they are not. We present empirical evidence on effects of perceived threat of entry on profitability. Using information from managers about how they assess the existence of entry barriers a strong impact of these assessments on profitability is confirmed. The number and the relative size of competitors also exert considerable effects. We find no statistically significant relation between the perceived threat of entry and the actual number of firms if the size of the relevant market is taken into account.

Suggested Citation

  • Heger, Diana & Kraft, Kornelius, 2008. "Barriers to Entry and Profitability," ZEW Discussion Papers 08-071, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:7414
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    Barriers to Entry; Profitability; Discrete Regression Models;
    All these keywords.

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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